Statutory Layoffs, Constructive Dismissal and Covid-19

BY SIMRAN BAKSHI, ASSOCIATE LAWYER

The Covid-19 pandemic has proven just how adaptive and resilient we are as a society. In the face of this crisis, we have embraced drastic changes to how we live, work, shop and even interact with one another.

Consider the actions that have been necessary in the employment law context.

With businesses across the province forced to shut down with little to no notice, many employers have had to make the difficult decision to lay off or downsize their workforce to stay financially afloat.

While in the normal course, such actions would be governed by the Employment Standards Act (ESA) and the common law, there are real questions in these unusal, pandemic times about whether the applicable laws will change or be re-interpreted.

It is generally settled law that despite the ESA's explicit layoff provisions, at common law, an employer in Ontario is not permitted to temporarily lay off an employee unless there is an employment contract permitting such action, or implied or express acceptance by the employee.

If the employer nonetheless imposes a layoff, the employee can treat such action as a constructive dismissal of her employment, and seek common law notice entitlements in a court acion for damages.

As the Ontario Court of Appeal affirmed in Elsegood v Cambridge Spring Service 2001 Ltd., 2011 ONCA 831 (CanLII):

[14] At common law, an employer has no right to lay off an employee. Absent an agreement to the contrary, a unilateral layoff by an employer is a substantial change in the employee's employment, and would be a constructive dismissal.

If the usual law is strictly applied to Covid times, any employer who has laid off employees to comply with the state of emergency may have constructively dismissed the laid off employees, unless the employer is relying on a layoff provision in an employment contract, or it has the employee’s consent.

To put this in context, as a result of Covid-19 closures, thousands of business across Ontario may have inadvertently severed their employment relationships with their employees, making them liable to pay hefty severance packages or damages awards.

The million dollar question remains, will our courts really allow this to happen, or will exceptions be made in interpreting the usual law of layoffs, in order to address the present reality?

Ontario Regulation 228/20, enacted by the Ford government on May 29, 2020, seems to signal that a new approach to Covid-related employment law claims may emerge.

This Regulation amends the Employment Standards Act to retroactively deem employees whose hours or wages have been temporarily reduced or eliminated due to Covid-19 to be on an infectious disease emergency leave, as opposed to being subject to a statutory layoff or constructive dismissal. 

It further deems that complaints filed with the Ministry on this basis as not having been filed at all, and protects employers from statutory termination and severance pay obligations otherwise arising from unlawful layoffs that may otherwise have given rise to constructive dismissal.

The Regulation, however, does not address the common law of constructive dismissal, nor does it bar an employee from bringing a civil claim for damages for constructive dismissal.

That, of course, brings us back to the question of what Ontario's Courts are likely to do with such claims

It would not be surprising if the Courts take a cue from the Ford government, finding that temporary layoffs necessitated by Covid-19 did not amount to a constructive dismissal.

The concern is that if employers are held liable for unlawful layoffs relating to Covid-19, there will be a floodgate of claims before the court, with a domino effect to follow of permanent business closures and bankruptcies. From a policy perspective, limiting constructive dismissal claims, at least temporarily, would provide much needed economic relief and stability, particularly to small and medium sized businesses that are otherwise on the brink of financial ruin. 

On the other hand, such an approach would eliminate an employee’s choice to assess whether an employment relationship has truly been severed. This will not always lead to a fair outcome. Legal advice should be obtained as to your rights and entitlements, if you wish to consider advancing a constructive dismissal claim.  

Many employees will be keen to return to work, irrespective of whether a Covid-19 layoff was technically sound. It may only be in circumstances wherein an employment relationship already stood on shaky ground that a layoff will be challenged. 

Even then, the context in which the layoff occurred will almost certainly be taken into account.

Going back to the basics, the act of unilaterally laying off an employee has typically been considered a constructive dismissal because it repudiates the expectation of continued paid employment.  There can be no such expectation if an employer is mandated by law to temporarily shut down its business due to the pandemic. The same cannot be said however, for an employer who seeks to take advantage of circumstances.

Our courts have always favoured a balanced approach when faced with competing interests and concerns.

Perhaps the most likely outcome is for the court to leave the door slightly ajar for exceptional claims of constructive dismissal, which arise during the Covid-19 period, looking closely at the actions and motivation of the parties.

- Simran Bakshi, Toronto

Visit our Toronto Law Office website: www.wiselaw.net

Ford Government: Ontario's 13-Week Layoff Limit Eliminated During COVID Emergency

The Ford Government has made a crucial, temporary change to Ontario's Employment Standards Act (ESA) that will impact countless employers and employees in the Province.

By operation of Ontario Regulation 228/20, published on May 29, 2020, the ordinary 13-week limit on the duration of workplace layoffs has effectively been suspended. This time-limit will not apply to employees who have been laid off due to COVID-related slowdowns and closures.

The Regulation will apply from March 1, 2020 until six-weeks after the Government ends its March 17 emergency COVID-19 declaration. It repesents a significant change that many employers have been clamouring for.

Ordinarily, where an employee is not recalled from a layoff within 13 weeks, the layoff is deemed to be a termination of employment by operation of section 56 (2)(a) of the ESA. 

There are certain exceptions in the Act to this deemed termination rule. These occur:

• Where the extended layoff is less than 35 weeks in any period of 52 consecutive weeks, and 
• The employee continues to receive substantial payments from the employer and
• The employer continues benefit payments for the employee.

Essentially, this Regulation means employers will no longer have a risk of liability for statutory notice or severance payments to employees who have been laid off for more than 13 weeks due to COVID-19, or to those whose hours or compensation are reduced during the COVID period.

In addition, the Regulation provides that no COVID-related reductions in employees' hours or compensation on or after March 1, 2020 will be treated as a constructive dismissal under the Act.

Many Ontario workplaces that are still closed due to COVID would have been approaching the statutory, 13-week layoff limit within the next week or two.

There was great concern among small employers and profesional practices, in particular, that they would face enormous, mandatory severance obligations to multiple employees at once at the end of the 13 week layoff period, even if they were still unable to open.

For some employers, such severance obligations could have become bankruptcy-triggering events.

As examples, most restaurants and mall-based retail outlets are not yet legally permitted to fully reopen, and after months of closure and partial-closures due the the Emergency Declaration, many could not possibly have withstood the costs of mandatory notice and severance obligations.

Similarly, many Ontario dentists - who until changes announced May 31 remained subject to significant regulatory restrictions that prevented them from providing non-urgent care, seeing recall patients or offering dental hygiene services - have simply been unable to re-open or to recall employees, given the potentially low demand for the few services they had been able to provide.

While some have argued that this Regulation represents a major blow for employees, I'm not pursuaded that there is much truth to that.

With the elimination of the 13-week layoff limit, employees ultimately get some degree of job protection. They will not automatically be deemed to be terminated. Many love their jobs and are chomping at their collective bits to get back to work, as soon as possible.  They are prepared to work collaboratively with their employers toward re-opening and do not want to be automatically dismissed by operation of the ESA.

For those that ultimately will not be returning, their entitlements to notice and severance have been delayed, not eliminated. Most are currently receiving EI or other government benefits, in the interim. That's not a perfect solution, of course, and the uncertainty about the future remains.

Without this Regulation, however, many workplaces faced a serious risk of insolvency and closure due to notice and other statutory obligations, alone.  This legislation temporarily removes that immediate risk, and gives employers additional time to get back on their financial feet so that jobs can be preserved.

Beyond that, this Regulation 228/20 gives employers and employees the flexibiity - with mitigated legal risk - to implement the gradual, staged approach to re-opending mandated by the Province and by public health authorities.

COVID closures were not the fault of employers or employees. This Regulation appears to be a fair effort to share the burden, balance the respective interests and at very least, to buy some much needed time.

As a final note, while the Regulation addresses the statutory standards set out in the ESA, it does not at first glance appear to impact or preclude Court-based claims for damages for wrongful dismissal or constructive dismissal. This is particularly important for those employees who did not expressly agree to their current layoffs and those who have not signed valid employment agreements that permit such layoffs.

It should also be noted that his new Regulation will not be applicable to those whose workplaces reduce hours or compensation for discriminatory or improper reasons that are unrelated to COVID, or to employers that otherwise go rogue. 

As always, there remains uncertainty as to how the Courts will ultimately address such claims.  Legal advice should be obtained by any employee with concerns related to COVID in the workpace.

To arrange a consultation with a Wise Law workplace and employment lawyer, click here.

- Garry J. Wise, Toronto

Visit our Toronto Law Office website: www.wiselaw.net

LawFact of the Day: Employment Law

Here is your daily LawFact from Wise Law for Wednesday August 24, 2016. Today we are talking about Employment Law.

A video posted by Wise Law Office (@wiselaw) on Aug 24, 2016 at 6:39am PDT

Did you know that certain terms of an employment contract are applicable even after the end of your employment?

This can include the duty of confidentiality, non-solicitation, and non-compete clauses.

It is important to carefully review your employment contract to fully understand your obligations both during your employment and thereafter.

- Garry J. Wise, Toronto

Visit our Toronto Law Office website: www.wiselaw.net

LawFact of the Day: Employment Law

Here is your daily LawFact from Wise Law for Wednesday August 3, 2016. Today we are talking about Employment Law.

A video posted by Wise Law Office (@wiselaw) on Aug 3, 2016 at 6:13am PDT

In 2015, an Ontario Court awarded 27 months’ of pay in lieu of reasonable notice to a 65-year-old civil engineer who had been employed for 40.66 years.

In exceptional circumstances involving extraordinarily long-service employees, it is within the discretion of Ontario Courts to award more than 24 months’ damages.

- Garry J. Wise, Toronto

Visit our Toronto Law Office website: www.wiselaw.net

Ontario Employment Law: Deemed Wrongful Termination Under The ESA, But Damages Calculated At Common Law

In Elsegood v. Cambridge Spring Service, decided on December 20, 2010, the Ontario Divisional Court heard an appeal from a Small Claims Court ruling that brought the relationship between the Ontario Employment Standards Act, in particular its "deemed termination" provisions relating to lay-off, and the common law rules governing quantum of damages for wrongful dismissal to the fore.

In the case, numerous layoff periods had been imposed against the Plaintiff employee's will; no single period of which ran afoul of the Act. The relevant provisions provide as follows:

What constitutes termination

56. (1) An employer terminates the employment of an employee for purposes of section 54 if,

(a) the employer dismisses the employee or otherwise refuses or is unable to continue employing him or her;

(b) the employer constructively dismisses the employee and the employee resigns from his or her employment in response to that within a reasonable period; or

(c) the employer lays the employee off for a period longer than the period of a temporary lay-off. 2000, c. 41, s. 56 (1).

Temporary lay-off

(2) For the purpose of clause (1) (c), a temporary layoff is,

(a) a lay-off of not more than 13 weeks in any period of 20 consecutive weeks;

(b) a lay-off of more than 13 weeks in any period of 20 consecutive weeks, if the lay-off is less than 35 weeks in any period of 52 consecutive weeks and,

(i) the employee continues to receive substantial payments from the employer,

(ii) the employer continues to make payments for the benefit of the employee under a legitimate retirement or pension plan or a legitimate group or employee insurance plan,

(iii) the employee receives supplementary unemployment benefits,

(iv) the employee is employed elsewhere during the lay-off and would be entitled to receive supplementary unemployment benefits if that were not so,

(v) the employer recalls the employee within the time approved by the Director, or

(vi) in the case of an employee who is not represented by a trade union, the employer recalls the employee within the time set out in an agreement between the employer and the employee;

While the Court agreed with the Plaintiff employee, that prolonged periods of layoff amounted to a "deemed termination" of employment for the purposes of section 56, the question of how to calculate the wrongfully dismissed Plaintiff's employee's damages created some disagreement between the parties.

The appellant employer took the position that since the "termination" had arisen by operation of the Act, damages should be calculated in accordance with it. The respondent employee took the position that he was entitled to pay in lieu of reasonable notice at common law. The Court ultimately agreed with the latter position, reaffirming what at this point in Ontario's employment law history must be viewed as trite law:

I do not read the Act or the case law referred to me as restricting the calculation of damages in this fashion. Rather, the Act merely sets out the minimum to which an employer is exposed in the event of termination without adequate notice, and does not create a ceiling for damages in this field.

If you believe you have been wrongfully dismissed, whether by prolonged layoff or otherwise, please contact a lawyer who can advise as to your rights and entitlements both under the Ontario Employment Standards Act and at common law.

- Robert Tanha, Toronto

Visit our Toronto Law Firm website: www.wiselaw.net

TORONTO EMPLOYMENT LAW • TORONTO CIVIL LITIGATION & ESTATE LITIGATION • TORONTO FAMILY LAW & DIVORCE

ORIGINALLY POSTED AT WISE LAW BLOG • SUBSCRIBE TO WISE LAW BLOG

Constructive Dismissal: Employers Beware

It is often said that people are assets and human capital drives the organization. But unfortunately the same assets and capital are the first to bear the brunt as part of cost-cutting exercises by businesses.

As per Statistics Canada, the Canadian economy lost 71,000 jobs in November 2008, 66,000 of which were here in Ontario. With a slowing economy, more job losses are expected in the months ahead.

However not all employers resort to cutting jobs immediately. Many business will try to manage the slowdown using a combination of different measures like rationalizing salaries, freeze wage increases, cut perks, and try cutting costs wherever possible, be it switching off the lights or economizing on travel.

Some employers see a certain virtue in cutting salaries rather than jobs. My wife's employer, a major travel company, has already started exploring ways of reducing employee costs without actually laying off people. These include employees working lesser hours per week and taking additional vacation time (unpaid). If the organizational culture is good, employees will understand that these are difficult times and will be willing to take these cuts.

However, before employers implement any such cost cutting measures that modify the terms of employment, they have to be careful as to not trigger constructive dismissal claims. Generally speaking an employee is considered to have been constructively dismissed where there is a breach of a fundamental term of the employment contract by the employer.

The principles of constructive dismissal are well established in Canada. As to what constitutes constructive dismissal has been explained in an old English decision, In re Rubel Bronze and Metal Company and Vos, [1918] 1 K.B:

"Dismissal may be effected by conduct as well as words. A man may dismiss hisservant if he refuses by word or conduct to allow the servant to fulfil his contract of employment. The refusal must of course be substantial in the sense that it is not a mere repudiation of some minor rights of the servant or of non-vital provisions of the contract of employment. The question is ever one of degree. If the conduct of the employer amounts to a basic refusal to continue the servant on the agreed terms of the employment, then there is at once a wrongful dismissal and a repudiation of the contract."

The leading Canadian case on the issue of constructive dismissal is the decision of the Supreme Court of Canada in Farber v. Royal Trust Co. [1997] 1 S.C.R. 846.

"Where an employer decides unilaterally to make substantial changes to the essential terms of an employee's contract of employment and the employee does not agree to the changes and leaves his or her job, the employee has not resigned, but has been dismissed. Since the employer has not formally dismissed the employee, this is referred to as "constructive dismissal". By unilaterally seeking to make substantial changes to the essential terms of the employment contract, the employer is ceasing to meet its obligations and is therefore terminating the contract. The employee can then treat the contract as resiliated for breach and can leave. In such circumstances, the employee is entitled to compensation in lieu of notice and, where appropriate, damages.”

However each constructive dismissal case must be decided on its own facts, since the specific features of each employment contract and each situation must be taken into account to determine whether the essential terms of the contract have been substantially changed.”

Accordingly, it is not every change that gives rise to constructive dismissal - the change must be substantial and must be to an essential term of the employment contract.

Generally it has been held that a demotion and a unilateral reduction in an employee's income by an employer amounts to constructive dismissal.

When asking employees to work fewer hours, employers must be aware that they cannot unilaterally implement such changes. Employers must get the employees prior agreement in writing before implementing such changes.

Some employers resort to a temporary lay off, permitted under the provisions of the Employment Standards Act. However, the courts have held that if the employment contract does not allow the employer to lay-off the employee, such temporary lay off amounts to constructive dismissal.

Following are some examples, where the courts have found constructive dismissal:

• The employee was demoted and his salary frozen where there had been an agreement
  that it there would be no salary freeze;
• The employee was not paid a 10% bonus when it was found that this was an integral part of his employment contract;
• Withdrawal of use of a company vehicle, which was of significant value to the employee in the context of the overall contract;
• A unilateral change of territory for a commissioned salesman which resulted in an immediate decrease of 25% of the employee’s compensation;
• The employee was demoted and changes were made to his reporting relationship, responsibility and support, all of which were held to be fundamental changes going to the root of the contract;
• Unilaterally imposing a cap on the bonus of the employee where there had never been one previously.

- Shashi K. Raina, Toronto

Disclaimer: Nothing in this article should be considered legal advice. Readers are advised to speak to an Employment Lawyer to discuss their specific situations.

Visit our Toronto Law Firm website: www.wiselaw.net

EMPLOYMENT LAW • CIVIL LITIGATION • WILLS AND ESTATES • FAMILY LAW & DIVORCE

ORIGINALLY POSTED AT WISE LAW BLOG • SUBSCRIBE TO WISE LAW BLOG